There are three types of taxes you directly or indirectly pay when you invest in Mutual Funds.
1. Tax to be paid by the investor
1. Tax to be paid by the investor
| Type of Fund | Tax if redeemed WITHIN 1 year | Tax if redeemed AFTER 1 year |
| Equity Funds (with over 65% investment in equities) | 10% | Tax-Free |
| All other funds | As per normal income tax rate applicable (the profits you earn are clubbed with your income) | 10% or 20% (with indexation benefit) |
2. Dividend Distribution Tax or DDT (Deducted at Source by Mutual Fund Company)
Though the dividend received by the investor from any mutual fund is tax free, a DDT (Dividend Distribution Tax) is deducted at source as per the following rate.
| Type of Fund | Dividend Distribution Tax on Dividends |
| Equity Funds (with over 65% investment in equities) | 0% (No Tax) |
| MIPs and Debt Funds | 12.5% |
| Cash Funds and Floater Funds | 25% |
3. Securities Transaction Tax or STT (Deducted at Source by Mutual Fund Company)
When you redeem your Mutual Fund Units, a STT is charged according to the type of investment.
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